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The Flat Tax Versus the Flat, Flat Tax

Although I am not a fan of the flat tax, this short video is well worth viewing. The look on President Obama's face is priceless as pediatric neurosurgeon Benjamin Carson criticizes the punitive thrust of progressive income taxation at the National Prayer Breakfast.

Of course the so-called "flat tax" is not really a flat tax at all because it extracts a much higher dollar amount from those earning higher incomes than from those who earn low incomes. For example, if everyone is taxed at the same flat rate of, say, 10 percent, then the individual earning $1 million per year must pay taxes of $100,000 whereas the individual earning an annual income of $50,000 pays only $5,000. The former is thus forced to pay a price twenty times higher than the latter has to pay for the same rotten government services. How is this not a punitive tax?

This phony flat tax contrasts sharply with the situation on the market where all individuals, regardless of income, pay exactly the same price for any given good like bread, tablet computers, Cadillacs, movie tickets and all of the other privately produced goods and services they buy. Now imagine if everyone were forced to pay a price in proportion to his income for everything he purchased on the market? A higher money income would no longer mean command over more goods and services. Hence, no one would have any incentive to earn a higher income by excelling at producing things consumers desired, and, as a result, productivity and the economy would come crashing down. If people truly wanted to avoid the discriminatory and punitive aspects of taxation then they would favor a "flat, flat" tax, that is an old-fashioned "capitation" or "head" tax in which everyone paid the exact same dollar amount to the government. Not only would this not penalize more productive people but, much more important, it would have to be very, very low in order to ensure that even the lowest-income people are able to afford it. I think 200 bucks a person per year sounds about right. To the bleeding hearts out there worried about the poor, I am more than willing to entertain proposals of 100 bucks, or better yet, zero.

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The Mises Wire —the Mises Institute's Blog—offers short, contemporary news and opinion from our scholars and associated personnel. Check back often for the latest commentary on Austrian economics and libertarian political economy.